Home Hospice Companies: Top Trends and Value Drivers

Valuation experts faced with valuing a home hospice business may think it is similar to other home health service businesses, but, while there are similarities, some material differences can affect a valuation. In a recent BVR webinar, Hospice Valuation: Trends, Value Drivers and Physician Compensation, experts Darcy Devine and William Hamilton, both of Buckhead FMV, gave an overview of what exactly a home hospice business is and some of the main factors to consider when valuing these types of companies. Here are some of the key takeaways every business appraiser should keep in mind when taking on these types of engagements.

What is home hospice?

Hospice is different from the rest of the healthcare industry in that its goal is not to treat or cure individuals, but rather to care for terminally ill individuals, making the process as comfortable as possible and providing support for not just the patient, but the patient’s family as well. Hospice care kicks in for anyone certified as having six months or less to live. Some people use the term “palliative care” interchangeably with hospice care, but they are different. Palliative care essentially is pain management and is often part of hospice care, but not all palliative care is hospice care.

Five important facts of the home hospice market

  • The hospice market is fragmented, with many small independent players that are generally small businesses not associated with health systems;
  • The majority of hospices have patient censuses of fewer than 50;
  • Some hospice firms are nonprofit organizations, but more than half are actually for-profit businesses;
  • The number of hospices has grown from about 2,255 in the year 2000 to about 4,200 in 2015; and
  • The number of Medicare-certified hospices has almost doubled. There has been a huge growth in the number of people receiving the hospice benefit and in the amount of Medicare expenditures per year

What are patient demographics?

As you can imagine, a hospice business has an older patient base than other healthcare firms:

  • Sixty-five percent of home hospice patients are close to 80 years of age;
  • More than half of home hospice patients are female; and
  • The average length of service is around 69.5 days, which is a key statistic for valuation because Medicare reimburses hospice on a per diem basis. Of course, changes in the Medicare reimbursement amounts should be carefully monitored.

What to know when doing a valuation of a hospice business

A very small percentage of hospice companies have a brick-and-mortar inpatient facility, so this is not a capital-intensive business. It is very labor-intensive, with staff salaries representing about two-thirds of total operating expenses. When doing a valuation for a hospice business, you will notice that there are a number of different employees or contractors, including:

  • Doctors;
  • Nurses;
  • Nurse practitioners;
  • Social workers;
  • Clergy;
  • Counselors;
  • Therapists; and
  • Many trained volunteers.

These are not discretionary workers—hospice services require an interdisciplinary approach, and, in many cases, having these workers available is a requirement. Also, since the services are rendered off-site, there is a considerable amount of travel involved.

Some additional observations of home hospice businesses:

  • Hospice firms have operating margins of 8% to 9%, which look good compared to most other healthcare entities, so they are attractive M&A targets;
  • All hospices must have a medical director, and all hospice patients must have 24/7 access to physician services;
  • Management integrity is key because hospices (as all healthcare entities) are subject to a huge amount of federal and state regulations, such as anti-kickback rules, which the appraiser needs to understand;
  • Hospices that operate in a Certificate of Need (CON) state generally have higher values;
  • Fraud can be a major factor at hospice firms that fail to comply with the requirements for recertifying patients who pass the six-month mark—this can trigger stiff penalties; and
  • Home hospice firms operate much like other home healthcare businesses, and some firms offer both types of services because the staff composition is similar, but hospice is a different product with different services, and possibly the reimbursements are not the same.

Value drivers of a hospice business

 The primary value drivers for a hospice business are:

  • Referral network: This may be the most important value driver because physicians, nursing homes, hospitals, and others refer patients or the patients’ families to the hospice. When valuing a hospice business, examine the nature of the community’s referring entities and the strength of the subject entity’s relationships with those entities.
  • Marketing: This is a very critical element for hospice providers, but this is the area where there is a material risk of fraud. ¬≠Improper marketing tactics that amount to paying for referrals can be violations of the anti-kickback law. The risk is reduced if the marketers understand the compliance issues.
  • Competition: Barriers to entry are an issue. There are requirements on the federal level (Medicare participation) and state level (operating restrictions, Certificate of Need requirements in some states). The existence of too many competitors is a problem unless the population density is such that enough people are in need of hospice to go around.
  • Management: A strong management team is a big differentiator for a hospice.
  • Labor market: Because a hospice needs a variety of workers with different skills, a thin labor market will hurt revenue and cash flow.
  • Level of care: There are four different levels of hospice care under Medicare:
    • Routine hospice care;
    • Continuous hospice care;
    • Inpatient respite care; and
    • General inpatient care.

However, 98% of the ­payments that Medicare makes for hospice are for the routine hospice care. The other three levels of care are reimbursed at higher levels, but they require far more resources to provide.

  • Demographics: The cultural makeup of the service area may impact performance. Studies have shown that different ethnicities have different feelings about hospice and not all will embrace the concept to the same degree.


Hospices all operate differently, particularly in the way they use physicians, so you can expect that every hospice engagement will be unique. Read the complete article in the October Business Valuation Update and get more in-depth details on the topic in the recent BVR webinar “Hospice Valuation: Trends, Value Drivers and Physician Compensation.”  Also, see the BVR/AHLA Guide to Valuing Physician Compensation and Healthcare Service Arrangements2nd edition, edited by Mark Dietrich and Timothy Smith.